FCA's figures for authorisation applications leave many unanswered questions

Amongst the many topics covered within the FCA's annual report there is a frustratingly short section concerned with the efforts being made to deal with all of the applications for authorisation by consumer credit firms.

As I have previously commented there are many questions to be answered about the process for both applicant firms and consumers and there is little in this report to answer these questions.

The report notes that initially around 50,000 firms registered with the FCA for interim permission, which allowed them to continue consumer credit business after the FCA took over regulation from the OFT. Importantly, all firms with interim permission can continue to their consumer credit business until such time as the FCA issues a Decision Notice.  For those firms that decide to challenge a proposed rejection, they can take their application to the RDC which will decide whether to issue a Decision Notice, and continue to trade whilst the process continues.

The FCA planned a "rolling programme of authorisation assessments", which started in October 2014, and it subsequently contacted all of the firms to let them know when they would need to apply for authorisation. Within the rolling programme each firm has a three-month period in which to apply (all firms need to have applied by April 2016) and once a firm has applied the FCA has up to 12 months to decide whether the firm should be authorised. Firms that are already authorised by the FCA to undertake other regulated activities are required to make an application for a variation of permission (VoP) to permit them to carry on consumer credit business, whereas firms that are not otherwise authorised by the FCA have to make a new application.

The FCA has two broad categories of authorisation for consumer credit firms; ‘limited permission’ and ‘full permission’. The FCA considers that firms requiring full permission carry on activities that are likely to be higher risk, and so those firms are subject to more checks during the authorisation process. The FCA adds that "complex cases and business models that pose higher risks to consumers will take longer to assess". Consequently it is likely that fewer applications from 'full permission' firms will have been determined thus far, particularly as these applications are also likely to be more contentious.

In the annual report it is noted that by the end of March 2015, 19,533 firms had submitted an application (this figure includes both new applications and VoPs). Of these, the FCA has apparently decided in 11,079 cases. Of the applications determined by the end of March 2015, the FCA states that it has authorised 10,286 firms and refused 18. The FCA also notes that 775 firms have withdrawn their application. What is not clear is how many of the firms whose applications have been determined are 'full permission' firms.  It is also not clear on what basis the FCA refused the applications of the 18 firms and whether the relevant firms had taken their case to the RDC and nor is it apparent how many of the 775 firms withdrew their applications because they had been told that the FCA was minded to refuse the applications.

Elsewhere in the FCA's annual report statistics are given outlining activity by the enforcement division.  It is apparent from these figures that during the year there were 2 open authorisations cases that enforcement worked on (both of which were closed in FY 14/15). Enforcement only works on authorisations cases which have become contentious because the relevant firm or individual has decided to take the matter to the RDC. What is not clear is whether either of these 2 cases may have related to an application for authorisation by a consumer credit firm.  It is also recorded that enforcement worked on 16 consumer credit cases which involved "action against firms that fail[ed] to meet the FCA's minimum standards". Again it is not clear if any of these 16 cases might relate to consumer credit authorisation applications.

The lack of clarity in these statistics is frustrating for those trying to get an insight into a number of facets of this process.  For example, it is unclear whether the FCA still has the bulk of the difficult applications to come, or has it in fact got many of these more difficult cases out of the way.  It is also unclear why firms have been rejected, whether some firms have abandoned their application because they have been told that they are unlikely to succeed and also whether some firms have challenged these rejections before the RDC.